Hevesi Backs Down on Campaign-Funds Fight

By MICHAEL COOPER

Published: August 8, 2001

Alan G. Hevesi backed down from his confrontation with the Campaign Finance Board yesterday, dispatching aides to negotiate with the board and pulling back from a lawsuit the mayoral candidate's political consultant had prepared to file to try to force the board to give the campaign millions of dollars in matching funds.

Mr. Hevesi, the city's comptroller and a Democrat, also retreated from the aggressive tone adopted by his consultant, Hank Morris, against the board. On Monday, the board withheld as much as $3.2 million in matching funds in a dispute over Mr. Morris's unusual billing arrangement, in which he admitted volunteering his services. Mr. Morris had accused the board of trying to embarrass Mr. Hevesi and then threatened to sue it by retaining ''the leading litigation firm in America.''

In contrast, Mr. Hevesi said yesterday that he had ordered his staff to cooperate with the board and that he would not be filing any lawsuits right away because he still hoped to ''amicably resolve this.'' He was the only one of the four Democrats running for mayor who did not get millions in matching funds on Monday.

An associate of Mr. Hevesi said yesterday that the comptroller had stopped the preparations for a court battle with the board, even though the campaign had already hired a prestigious law firm and drawn up court papers. ''The comptroller has put a halt to it,'' the associate said.

Mr. Hevesi conceded publicly yesterday that the feud with the board had tarnished his campaign effort by creating the perception that ''we were not abiding by the law and the rules; that's the biggest problem.''

''This should not be the issue of the last month of the campaign,'' Mr. Hevesi said at a campaign appearance in downtown Brooklyn. ''The issue has become a distraction.''

Mr. Morris had been trying to prove to the board that Mr. Hevesi had not -- as his rivals had complained -- been violating the city's campaign finance laws or circumventing the spending caps by skimping on how much it pays Mr. Morris and his firm.

Candidates are entitled to public matching funds only if they agree to limit how much they will spend; in this case, they are allowed to spend $5.5 million in the primary.

Instead of hiring a costly campaign manager, Mr. Hevesi's campaign is being run by Mr. Morris, a normally high-priced political consultant who says that in this race he is a volunteer. Instead of renting office space, the campaign is being run from the Madison Avenue offices of Mr. Morris's consulting firm.

The arrangements have kept Mr. Hevesi's overhead costs hundreds of thousands of dollars lower than those of his rivals for the Democratic mayoral nomination. That strategy, based on significant savings, allowed Mr. Hevesi to begin running more than $1 million in television commercials months before his rivals.

Mr. Hevesi told reporters yesterday that he believed in the city's campaign finance laws and that he believed his campaign had complied with them. ''This is not about finding loopholes,'' he said. ''This is about finding the most frugal and best way to spend your money.''

But that frugality now threatens to cost the Hevesi campaign millions of dollars in lost matching funds, or perhaps thousands of dollars in fines, unless the Hevesi campaign can convince the Campaign Finance Board that Mr. Hevesi's arrangements with Mr. Morris are legal.

Some Democrats say that the standoff could hurt Mr. Hevesi with voters who supported strict campaign finance laws and newspapers that endorsed candidates. And the television news reports showing Mr. Morris arguing with the Rev. Joseph A. O'Hare, the chairman of the Campaign Finance Board, who was wearing his clerical collar at the time, hardly represent the kind of image a campaign wants to project five weeks before the Sept. 11 primary.

To try to resolve the problem as quickly as possible, Mr. Hevesi said that he had instructed his campaign to provide the Campaign Finance Board with more information, which it had requested, including the amount of money Mr. Morris had charged to work on his campaigns for comptroller in 1993 and 1997 and the amount of money Mr. Morris charged for services he provided to James K. Hahn, the new mayor of Los Angeles.

He said that he believed the board would find that his past arrangements with Mr. Morris were comparable to the present one. But Mr. Hevesi declined to say whether Mr. Morris had volunteered or had been paid at full market value in the past. ''The answer is I'm going to allow him to produce the documentation for the Campaign Finance Board first, before we provide information to the press,'' he said.

And while continuing to maintain that he believed Mr. Morris had a right to volunteer, Mr. Hevesi hinted that he might pay Mr. Morris more money if the campaign finance board was not satisfied with their current payment formulas. ''If they want adjustments, we'll even make adjustments,'' Mr. Hevesi said. ''Whatever's necessary to resolve this.''

Photo: Alan G. Hevesi said yesterday that he did not want his candidacy for mayor to be dominated by the issue of campaign financing. (Nicole Bengiveno/The New York Times)